GST could trigger deflection of goods and fronting

With the implementation to Goods and Services Tax (GST) in India making the price of goods and services in Phuentsholing competitive, trade officials are wary of fronting business increasing in the country’s commercial hub.

However, figures of business licenses approved before and after the introduction of GST show otherwise.

Between June 17 and August 11 this year, the trade department in Phuentsholing issued 25 retail licenses, 18 micro licenses, and nine wholesale licenses in Chukha. The office issued licenses for 115 micro businesses, 98 retail businesses, and 20 wholesale businesses between January 1 and July 5 this year. Micro business licenses include businesses from rural areas.

Regional trade director, Pem Bidha, said the office is aware of the chances of fronting businesses in the border town. “In order to come up with strategies to control, we are coordinating with relevant agencies.”

She said that the trade office would soon have a meeting with the revenue and customs office in Phuentsholing.

Pem Bidha said her office was actively monitoring illegal businesses even before the GST was introduced. “The trade office ensures that a license holder has a proper business set-up when the licenses are issued.”

The regional director said they also monitor the establishments when people come for license renewal.

According to trade officials, the issuance of licenses would be stricter following the GST, where they would conduct inspections every two to three months.

Bhutan Chamber of Commerce and Industry’s business representative in Phuentsholing, Lobzang Tshering, said monitoring of businesses after issuance of licenses is important. “Verification process during license approvals cannot be just the means.”

He said that a particular business establishment could shift from one place to another after the license is issued.

Lobzang Tshering said the major issue would be deflection of goods from Phuentsholing. “I am worried that might happen in future.”

He said that the economic affairs ministry is the most important agency to look into that. “Private sector and the public should also play a role to curb fronting.”

With a porous border, fronting of business, which is to offer a license to another person for a commission, is a serious concern in Phuentsholing. In 2015, the Anti-Corruption Commission investigated several fronting cases.

Lyonchhen Tshering Tobgay and finance ministry officials, while interacting with representatives from various sectors in Phuentsholing recently, also emphasised that there would be risks when goods and commodities get cheaper in Phuentsholing.

“What is imported into Bhutan should not go outside,” Lyonchhen said. “It would be illegal.”

Since India will not impose GST on exports, imports from India would become cheaper in Bhutan.

For instance, the GST slab for household (electronics) appliances is 28 percent in India and the export is tax-free. This means Phuentsholing will have 28 percent edge over price across the border. Mobile phones attract a 12 percent GST in India.

A garment shop owner in Phuentsholing, Sonam Penjor, said that although a lot is talked about GST, nothing is certain at present.

“We will have to wait and see,” he said.

Sonam Penjor, however, said fronting of businesses could occur. “Appropriate measures should be taken.”

Meanwhile, the trade department has issued about 1,730 trading licenses across the country from January 1 to July 5 this year.

Rajesh Rai | Phuentsholing

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply